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Taïeb Hafsi, HEC Montréal China: Thoughts About a Born Again Civilization Presentation at the CÉRIUM’s Summer School China Risen How it changes and change us A PRIMER 1. Capital: Beijing 2. Area: 9.6 million km2 3. Population: 1.3 billion (2000) 4. 56 ethnic groups (Han: 91.6%; Muslims: 21 million) 5. Communist party: 6.5 million members 6. 1840: China accounted for 1/3 of World GDP; 2003: it was only 5% ! A PRIMER 7. 4 cities directly controlled by Central government: Beijing, Shanghai, Tianjin and Chongqin 8. 23 provinces (Incl. Taiwan); 5 autonomous regions (incl. Tibet); 2 special administrative regions (HK and Macao) 9. 26 are larger than France; 16 are larger than Quebec A PRIMER 10. The 5th largest economy in the World (2005) GDP: US $ 2300 Billion (+9.9%) FDI: US $ 60.3 B RESERVES: US $ 800 + International Trade (2005): US $ 1422.1 B (+23.2%) US deficit with China: US $ 201 B Over 250 M. people have been pulled out of poverty Middle class is developing fast and is expected to reach 500 million people by 2020 HISTORICAL FACTS A remarkable history: over 4000 years old 16 dynasties: Qin, Han, Dang, Song, Yuang, Ming and Qing More than 250 emperors Yin Zheng: first to centralize feudal monarchy and unite China in 221 BC Kublai Khan: unified China and Mongolia in 1276 AD Yong Zheng: officially integrated Tibet into China in 1727 AD China first republic in 1911 by Sun Yat-Sen Popular republic in 1949 1976: Death of Mao, Zhou and Zhu 1979: Deng Xiaoping starts the economic reforms Transitions from a centrally planned economy to a Planned Socialistic Market Economy, and then to the Socialistic Market Economy with Chinese Characteristics SOCIAL HISTORY Pictographic and hieroglyphic characters Confucean philosophy Taoism, Buddhism, Islam and Christianity 54 different languages (28 written) and over 2000 local dialects Qing (1644-1911): three official languages (Mandchu, Mandarin and Mongolian) Korean, Mongolian, Arabic and Tibetan official in some provinces or regions Hierarchical society, based on strong family values and norms Importance of Guanxi, dining and gift-giving MORE PRECISELY POPULATION 1953: 600 MILLION 2000: 1.3 BILLION ACTIVE POPULATION 1953: 200 MILLION 1978: 400 MILLION 2001: 744 MILLION (A: 365; I: 165; S: 202) MORE PRECISELY GDP:2001: $ 1159M; 2004: $1600M State firms: 42% Foreign subs: 29% Others: 29% Coastal provinces: 64% of GDP, 82% of FDI and 91% of exports in 2001 GDP per capita: 900 et ppp: 4500 in 2001; 1200 and 6000 in 2004 FDI: 1991-2005: $ 460 B of which 75% ASIA MORE PRECISELY EXPORTS: 6% OF WORLD TOTAL (2005) 8% ELECTRICITY/ELECTRONICS 25% TEXTILES 11% WOOD 3% FOOD PRODUCTS 3% CHEMICALS 52% ASIA 22% USA 18% EUROPE CHINA THOUGHTS ABOUT A BORN AGAIN CIVILIZATION BY TAÏEB HAFSI PROGRAM 1. CHINA’s HISTORY and CHARACTER 2. THE MAO PERIOD 3. THE MORE RECENT TRANSFORMATION 4. THE CASE OF THE ELECTRICITY INDUSTRY CHINA IS A CIVILIZATION More than a country, China is a civilization A strong culture Deeply rooted traditions Highly institutionalized social behaviour This is said to be the civilization that has lasted longer A UNIQUE CIVILIZATION Even the pharaos cannot rival the wealth and decorum of the Chinese emperors The size of this civilization has given the empire a scope unrivaled before. This may be also explained by its longevity Quality of life, prosperity and technological development were considerable when the West was just starting A UNIQUE CIVILIZATION IT IS HIGHLY DIFFERENTIATED Each region is different Geographically In terms of population Socially Economically Culturally But the civilization held a coherent global character, probably because of agriculture A CIVILIZATION BUILT WITH PAIN AND BLOOD All the history of China is dominated by considerable violence Periods of violence were separated by periods of munificent prosperity But… almost a miracle China remained generally united Even if during some periods, as in Italy, it was split between rival independent kingdoms DOMINANT CHARACTERISTICS UNCEASING STRUGGLES HAVE GENERATED THE FOLLOWING PATTERNS: THE CENTRAL ROLE PLAYED BY EMPERORS THE POWER OF CENTRAL GOVERNMENT THE RELENTLESS DESTRUCTION OF ANY RESISTANCE TO THE CENTER DOCILE POPULATION AND LITTLE INTEREST IN CENTRAL POWER HOWEVER… LEADERS’ MORAL BEHAVIOUR WAS A KEY TO STABILITY DOMINANT CHARACTERISTICS EMPEROR WAS A SEMI-GOD AS LONG AS HE WAS SEEN AS BEHAVING FOR THE GOOD OF THE PEOPLE WHERE HE WAS NOT, IT WAS LEGITIMATE TO REMOVE HIM WHICH WAS OFTEN THE REASON FOR CONTENTION BY BARONS AND GENERALS THE IMPORTANCE OF LEGITIMACY TO ACT IN CHINA, YOU NEED LEGITIMACY WHEN LEGITIMATE, EVERYTHING IS POSSIBLE, PROBABLY BECAUSE OF THE NUMBERS EFFECT THIS MAY EXPLAIN THE EMPIRE TRADITIONAL STRENGTH THE TEST OF LEGITIMACY IS PRAGMATIC AND CONTINUAL: THE COLLECTIVE WELLBEING OF THE POPULATION THE INSTRUMENTS OF POWER BESIDES LEGITIMACY WHICH COULD EXPLAIN EVEN THE MORE EXTREME DECISIONS THE EMPEROR’s POWER WAS SOON COMPLEMENTED AND SUPPORTED THROUGH AN APPARATUS FOR MANAGING THE CIVILIZATION WHICH INCLUDED: THE BUREAUCRACY RULES, LAWS AND PROCEDURES CONFUCEAN VALUES AND SOCIAL CONTROL SOCIAL CONTROL TO AVOID AN ENDLESS WAR AROUND LAND OWNERSHIP EACH HAD TO RESPECT SOMEONE ELSE’s LAND EACH HAD TO REMAIN ASSOCIATED AND ATTACHED TO THE LAND OF BIRTH NOBODY CAN MOVE FROM ONE PLACE TO ANOTHER WITHOUT PERMIT FROM THE LOCAL ADMINISTRATION THE POPULATION ITSELF DID THE POLICING CHINESE CHARACTER THE CHINESE CIVILIZATION WAS THEREFORE ONE IN WHICH: EMPEROR IS IMPORTANT LAW IS IMPORTANT BUREAUCRACY IS IMPORTANT LOCAL LIFE IS IMPORTANT DOMINANT VALUES ARE PRAGMATISM AND GROUP BEHAVIOUR IT WAS AMERICA BEFORE AMERICA WAS BORN ! AS A RESULT A PROSPEROUS CIVILIZATION TECHNOLOGICALLY ADVANCED SOCIALLY STABLE ADMINISTRATIVELY BALANCED INDUSTRIOUS NOT INTERESTED IN OTHER COUNTRIES EXCEPT WHERE THREATENING BIASED AGAINST CHANGE MORE RECENTLY DOMINATED BY: CONSIDERABLE WEAKENING OF THE EMPOROR’S POWERS AND ITS PROGRESSIVE DISAPPEARANCE EMERGING WESTERN DOMINATION JAPANESE COLONIZATION RISE TO POWER AND DOMINATION BY THE COMMUNISTS MAOISM CREATING A COUNTRY THE COMMUNISTS SUCCEEDED IN WINNING AGAINST THE NATIONALISTS allied to the USA, BECAUSE OF: THEIR VALUES CORRUPTION IN THE GUO-MIN-TANG AN INSPIRED LEADERSHIP THE VIOLENCE OF JAPANESE COLONIZATION, WHICH HAS CRYSTALLIZED THE IDEA OF CHINESE CIVILIZATION AND FACILITATED MOBILIZATION AROUND IT COMMUNISM WITH A STRONG AND WELL TRAINED PARTY, PRESENT EVERYWHERE IN THE LAND THE COMMUNISTS HAVE BEEN TEMPTED BY A UNIFIED AND CENTRALIZED MANAGEMENT OF CHINA NEW EMPEROR, MAO INSPIRED BY MARXISM PROVIDED THE IDEALS REQUIRED LAUNCHED PHARAONIC PROJECTS, SOME OF WHICH WERE CATASTROPHIC E.G.: THE GREAT LEAP FORWARD E.G.: THE CULTURAL REVOLUTION BUT REVEALED CHINA TO ITSELF, THUS CREATING THE IDEA OF A NATION COMMUNISM BUT TOTAL CONTROL BY THE COMMUNISTS WAS AT THE OPPOSITE OF CHINESE SOCIAL EXPERIENCE THE COMMUNIST PERIOD WAS ONE OF THE ONLY ONES WHERE CHINA HAS BEEN CENTRALIZED CHINESE USED TO TAKE CARE OF THEMSELVES HAVE BEEN TAKEN CARE OF BY THE PARTY AND THE STATE THEY HAVE BEEN FASCINATED BY MAO AND AS USUAL HAVE NOT RESISTED THE COMMUNIST FAILURE AS IN ANY COMPLEX ORGANIZATION THAT GETS CENTRALIZED AT THE BEGINNING RESULTS WERE ENCOURAGING THEN STARTED A LONG AND FAST SLIDE WHICH STOPPED ONLY WITH MOA’s DEATH RETURN TO TRADITIONS DENG XIAOPING, MAO’s COMPANION, WAS A PRAGMATIC MAN IT WAS CLEAR THAT THE CENTRALIZED SYSTEM DID NOT WORK BUT INSTEAD OF GOING TO EXTREMES AS WAS DONE IN RUSSIA HE DECIDED TO GO BACK TO TRADITIONS RETURNING TO TRADITIONS MEANT: THE CENTER IS IMPORTANT AND SHOULD BE PROTECTED BY ANY MEANS IT IS THE MASTER OF THE GAME BUT… LOCALLY EVERYONE CAN DO WHATEVER IS POSSIBLE TO SURVIVE END OF SOVIET PLANNING END OF COLLECTIVISM DOGMA AUTORIZE DEVELOP INITIATIVES, BOTH PRIVATE AND PUBLIC EMPHASIZE STABILITY AND CONTINUITY: EG: SOCIALIST MARKET ! THE AGRICULTURE AS A CATALYST THE INITIATION WAS ATTEMPTED IN AGRICULTURE WHERE THE STAKES WERE HIGHEST THE PROPERTY SYSTEM WAS RENOVATED GIVING PEASANTS ENOUGH SPACE TO TAKE INITIATIVES: POSSIBLE PROPERTY OF THE LAND USUS AND FRUCTUS GARANTEED CHOICE OF CULTURE CONTRÔLED BUT LIBERALIZED LIBERLIZATION OF DISTRIBUTION AND SALES THE FOLLOWING STEPS 1. SPECTACULAR RESULTS AUTORIZED TO PRODUCE AND SELL FREELY A PART OF THEIR CROP, PEASANTS HAVE COME UP WITH A REMARKABLE PERFORMANCE PUSHING DEFINITELY AWAY THE SPECTER OF FAMINE 2. REINSTATEMENT OF COMMUNISTS WHO HAVE TAKEN AGAIN THE INITIATIVE AND REEXAMINED THEIR SOCIAL THEORIES THE FOLLOWING STEPS 3. TO FACE THE NEW PROBLEMS OF AGRICULTURE, CREATION OF VILLAGE AND COUNTRY ENTERPRISES WITH: EVEN MORE IMPRESSIVE RESULTS DEVELOPMENT OF A DYNAMIC AGRIBUSINESS 4. EXPANDING THE REFORM TO THE PUBLIC FINANCIAL SYSTEM AND TO SOEs 5. CONTROLLED LIBERALIZATION AT THE REGIONAL AND CITY LEVELS 6. PROGRESSIVE LIBERALIZATION OF THE ADMINISTRATIVE CONTROLS, ESPECIALLY THOSE AFFECTING INTERNAL MIGRATION TODAY’S PROBLEMS 1. DIFFICULTIES WITH THE FINANCIAL SYSTEM REFORM 2. DIFFICULTIES WITH THE SOEs’ REFORM 3. IMPORTANT PROBLEMS OF JOBLESSNESS AND ABSENCE OF A SOCIAL NET SYSTEM 4. GRAVE SOCIAL-MEDICAL PROBLEMS 5. IMPORTANT LOCAL CONFLICTS AROUND LAND 6. CORRUPTION PROBLEMS FOR THE WEST 1. SOME CHINESE INDUSTRIES ARE EXCEPTIONALLY PRODUCTIVE (E.G., CONSTRUCTION, MANUFACTURING) 2. THE CHINESE ECONOMY CAN BECOME TOO POWERFUL (PCs, AUTOMOBILES, STEEL) 3. THE EFFECT ON WESTERN ECONOMY TRADITIONAL INDUSTRIES IS DEVASTATING (TEXTILE-CLOTHING) 4. MULTINATIONALS ARE TOO DEPENDENT ON CHINA AND STRONGLY ATTRACTED TO IT ! QUESTIONS ? FIRST ROUND OF DISCUSSION INSTITUTIONAL CHANGE THE CASE OF THE ELECTRICITY INDUSTRY IN CHINA FROM 1980 TO 2004 THE TRANSFORMATION 1980: ONE ORGANIZATION (THE STATE) OLD AND RUNDOWN SYSTEM INSUFFICIENT SUPPLIES GOVERNMENT UNABLE TO INVEST MORE POLLUTION 2004: AN ORGANIZATIONAL FIELD WITH MORE THAN 4000 FIRMS MODERN SYSTEM SURPLUS OF ENERGY MOST INVESTMENT MADE BY FOREIGNERS SOPHISTICATED INSTITUTIONAL FRAMEWORK THE RESEARCH QUESTION CHINA IS A COUNTRY WITH VALUES/IDEOLOGY THAT HAVE TRADITIONALLY BEEN OPPOSED TO MARKET AND FREE ENTREPRISE STATE STRUCTURE AND SYSTEMS HAVE BEEN PARTICULARLY RIGID BECAUSE OF VALUES AND BECAUSE OF HISTORY, ALL OF WHICH SUGGEST A STRONG RESISTANCE TO CHANGE HOW TO EXPLAIN SUCH A TRANSFORMATION ? THE INSTITUTIONAL PERSPECTIVE Selznick and the importance of values The problem of values: invisible and taken for granted Scott and the new institutionalism: values are internal but also external External values are the result of rules and regulations, norms and cognitives orientations, all of them are also mostly invisible and taken for granted INSTITUTIONS In institutionalists’ definitions, institutions are ideas, values, cognitive orientations which have an influence on the behaviour of organizations. Three levels of institutions are considered: 1. Regulations at the most practical level 2. norms, mostly professional, but also social and societal 3. values and culture at the most abstract level THEORETICAL QUESTIONS HOW DO INFLUENCES OF GENERALLY NOT VISIBLE FACTORS INTERACT WITH THOSE OF MORE VISIBLE FACTORS TO EXPLAIN BEHAVIOUR ? HOW DO ACTORS BECOME AWARE OF THESE INVISIBLE FACTORS AND HOW DO THEY CHANGE THEM ? THEORETICAL ISSUES USUALLY INSTITUTIONALIST THEORIES ARE DETERMINISTIC AND ANTI-CHANGE ! MORE RECENTLY, IT HAS BEEN SUGGESTED THAT THE ANTI-CHANGE INTERPRETATION OF INSTITUTIONS SHOULD BE REVERSED INSTITUTIONAL THEORIES CAN HELP UNDERSTAND RESISTANCE TO CHANGE AND THUS HELP ACHIEVE CHANGE ! RELEVANCE OF INSTITUTIONAL THEORIES PARTICULARLY RELEVANT FOR THE UNDERSTANDING OF COMPLEX SYSTEMS ALSO WHEN ONE STUDIES AN ORGANIZATIONAL FIELD (AN INDUSTRY, A REGION, A NATION) ALSO WHEN HISTORY IS IMPORTANT FOR THE UNDERSTANDING OF ORGANIZATIONAL DYNAMICS E.G.: Leblibici et al (1991); Dacin (1997); Holm (1995); Hoffman (1999) The Chinese Electricity Industry An ideal setting for such a research The cultural setting is rich and is normally opposed to change The size and importance of the industry are such that one would expect bureaucracy and resistance to change THE FINDINGS IN A NUTSHELL The transformation process follows a cycle pattern The various levels, national, provincial, local and firm, complement each other and take the lead at different phases The central government play the leading role in the cultural-cognitive change The provincial and local levels play a central role in the change of industry norms and regulations, and contribute to integrating the whole process The firm level play the leading role in the development of professional and managerial normes, rules and procedures METHODOLOGY Burger and Luckman (1967) and Schutz (1967) The constructs used by the social scientists are, so to speak, constructs of the second degree, namely constructs of constructs made by actors on the social scene, whose behavior the scientist observes and tries to explain in accordance with the procedural rule of his science Need for a phenomenological approach to discover how « subjective meanings become objective facticities » Historical and clinical study, sometimes adhoc and opportunistic CHINA ONE OF THE OLDEST AND MOST DURABLE HUMAN CIVILIZATION THE IMPERIAL SYSTEM BASED ON: THE EMPEROR, A DEMI-GOD, MANDATED BY HEAVEN THE BUREAUCRACY, WITH A SOPHISTICATED SYSTEM CONFUCIANISM CIVIL WAR AT THE BEGINNING OF THE 20TH CENTURY VICTORY OF MAO AND HIS FOLLOWERS CHINA THE MAOIST SYSTEM WAS VERY POWERFUL AND, FOR A FIRST TIME, CENTRALIZED CHINA AS A RESULT THERE WERE REMARKABLE ACHIEVEMENTS AND SOME CATASTROPHES THE GREAT LEAP FORWARD THE CULTURAL REVOLUTION CHINA SEVERE SOCIAL CONTROL EVERYONE BELONGS TO A DANWEI THE DANWEI PROVIDED JOBS, SHELTER, EDUCATION AND TRAINING, FOOD RATIONS, CLOTHING AND FURNITURES DANWEIs HAD NOT DIRECT CONNECTIONS THE CENTRALITY OF THE LAW: CHINA HAS BEEN A COUNTRY OF LAW AND RIGHTS FOR A VERY LONG TIME POST-MAO REFORMS DENG REALIZED THE DIFFICULTY OF MANAGING CHINA CENTRALLY HE INDUCED THE CENTRAL GOVERNMENT TO FOCUS ON CRITICAL ISSUES AND LEAVE SPACE FOR LOCAL ECONOMIC CHANGE AND EXPERIMENTATION, AS WAS DONE IN EARLIER PERIODS ! E.G.1: Countryside and agriculture then village and county enterprises E.G. 2: Trade and investment systems THE ELECTRICITY INDUSTRY FROM THE EARLY 1980s THE ECONOMY GREW AT AROUND A 10% PER YEAR PACE THE ELECTRICAL ENERGY COULD NOT FOLLOW AND HAD TO BE REVAMPED THE TRANSFORMATION OF THE ELECTRICITY SYSTEM FOLLOWS THAT OF CHINA AS A WHOLE AND GOES THROUGH SIMILAR DIFFICULTIES Transformation of the electricity industry Three phases: 1980-86: Central government «composer and conductor», and the units as players. The key goal was ensuring supply 1987-1996: Central government as a manager of context, with rare direct interventions. Firms had to solve their own problems and could enjoy a lot of autonomy 1996-2004: Greater role for firms. Central government focused on policies and legal framework. Goal: ensuring fair competition and the competitiveness of firms EXPLAINING THE TRANSFORMATION It is the transformation of China as a whole that showed the way Institutions in China are strong and deep-rooted: Law and order are important A local perspective is essential The Bureaucracy is legitimate The passage to a market economy was possible because it was already in the make up of the Chinese Mao was a brief abberration EXPLAINING THE TRANSFORMATION The process was simple and slow Avoid chaos (a lesson from history) Experiment first Generalize slowly, stimulating rather than mandating Changes that are aimed at more profound institutions take more time ! THE TOP-DOWN PROCESS Phase 1: most of the change was societal in nature. More than 6 years were needed to find a way to go around traditional institutions Party norms favored stability, hierarchy, conflict avoidance, and the primacy of effectiveness over efficiency. They were hard to discredit. There was a need to separate the political from the economic and justify the separation The cultural-cognitive transformation has been mostly incremental and had to take into account that the provinces had differing interests Decisions were mostly symbolic or exceptional (e.g. Huaneng) THE BOTTOM-UP PROCESS Phase 2: Emphasis on normes and regulations Reduce the Central bureaucracy and decentralize to provinces and cities Introduction of fundamental laws BUT LOCAL INITIATIVE (e.g., Listing of Huaneng on the NYSE) Spectacular performance BALANCING THE WHOLE Phase 3: adjustments and emergence of new problems Environment Competition Integration Governance Emphasis on professional and managerial norms THEORY THREE INTERRELATED CYCLES THE NATIONAL LEVEL CYCLE First give all the attention to the cultural-cognitive aspects: the market and the private could be acceptable Normes and regulations about financial, production and marketing aspects Regulation about environment and competition THEORY Cycle at the local level Reconcile tradition with market and private in specific situations Norms and regulations about production, HRM and Marketing Rules an procedures for environmental protection and competitive behaviour Cycle at the firms level Managing people’s values Coordination among firms; management norms Coordination and innovation; professional norms and ethical behaviour THEORY THE INTERACTIONS AMONG CYCLES ARE RELATED TO THE SPECIALIZATION OF ROLES Phase 1: Central government and Party emphasize cognitive aspects (values, beliefs) Phase 2: Local governments emphasize general norms for industries and firms Phase 3: firms and managers emphasize managerial and professional norms for firms and managers CONCLUSION IN A COMPLEX SYSTEM: There is a specialization of roles At the central level concern is with the system as a whole At the firm level, concern is with regulation, and with adapting practices to the competitive situation At the local governments’ level, concern is normative, and with reconciling the other two levels through mediation both physical and temporal CONCLUSION THE SUCCESS OF THIS CHINESE TRANSFORMATION COMES FROM A DELICATE RECONCILIATION OF INSTITUTIONAL TRADITIONS AND ECONOMIC DEVELOPMENT NEEDS WILL THE CHINESE BE ABLE TO MAINTAIN SUCH A DELICATE BALANCE ?